Bank of America said that a charge from the tax law that was just instituted in the U.S. caused its profit for the quarter to drop 48%, even as it ended 2017 by putting its crisis-era far behind it.
The bank, based in Charlotte, North Carolina, posted on Wednesday profit for the fourth quarter that reached $2.37 billion equal to 20 cents per share compared to profit of $4.54 billion from one year ago.
Without the tax charge of $2.9 billion, the profit at the bank would have increased to just over $5.3 billion equal to 47 cents per share. Analysts were expecting adjusted profit to reach 44 cents per share.
For the full year, the bank ended with a profit of $21.1 billion, excluding the adjustment of taxes. That nearly matched the all-time high profit record at the bank set in 2006, when it was a consumer-focused bank that had not bought Countrywide Financial, a struggling mortgage lender or Merrill Lynch the investment bank.
Executives at BofA said late Wednesday that the outlook for 2018 is bright. That is due to the hit of one-time from the new tax measure that should be outweighed by the longer term benefits of the new law.
The charge for the fourth quarter was due largely because the bank wrote down deferred tax assets. The credits that offset future tax bills had been created through prior losses, in several cases very big losses that hit the bank during the country’s financial crisis. Those assets usually lose value when there is a drop in the tax rate.
The bank is expecting its 2018 effective tax rate to be 20%, which would be down from its expected rate of 29% prior to the new law, said CFO Paul Donofrio.
CEO Brian Moynihan announced that he expected the majority of the benefit by the bank from the recent tax cut would go to the bank’s shareholders, who should see higher returns through dividends as well as share buybacks. Part of it is to be spent on investing. Moynihan also said he is expecting tax changes to lead to more growth in the bank’s loans.
The benefits the tax bill gives the bank should accelerate the progress BofA has made in rebuilding its business following the crisis. Just as recently as four years ago, the bank’s results were hit by penalties in the tens of billions of dollars over issues during the financial crisis.
But since that time, legal problems at the bank have eased, as Moynihan has cut costs while focusing on safer business like lending to those with good credit.